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newstarter


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Dividend charges
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Another quickie please regarding dividend payments.

Once a company has made profits and a director takes dividends fom the company, is the 10% dividend charge shown in the company accounts or in the directors annual self assessment ?

Also, is the corp tax after taking the dividends or before please?

Kind regards,

Richard.

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Shamus


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Hi Richard,

The 10% charge is a notional credit.

In the tax computation of the individual you gross up the dividend (*100/90).

The corporation tax computation is after dividends. (otherwise you would effectively be taxing the dividends twice).

Hope that this helps,

Shaun.

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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
newstarter


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Shaun, thank you for your answer. That is a great help. I thought you had to physically pay over the 10% !
Richard.

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RobH


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The individual will pay further tax however if the dividend plus other income put him into the higher rate tax bracket. The company makes a distribution of profit after corporation tax and as you rightly say this comes with a 10% tax credit. This becomes particularly tax efficient for owner managed companies as there is no national insurance for the employer or employee(shareholder).

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RobH


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also Shaun has had a long day at the books today and he meant to say that corporation tax is calculated before dividends. Dividends (distribution of profit) are declared from profit after tax, but we will forgive him this slip as he is far and away the most knowledgeable person on this forum and free with his advice!

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Rob
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Shamus


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Oops, how embarrassing.

yes it has been a long day but no excuses. Apologies for my senior moment. As Rob correctly states the Dividend is actually after tax.

Here's the full P&L pro forma which makes things a lot clearer.

P&L.JPG
I think that it's one of those things where if I'd looked at it on the P&L in the first place I would have just said "It goes there".

Bygones, must remember for next time though. "Less haste, more speed".

Sorry again and cheers for picking that one up Rob, I'll just go off and throw myself on my sword now!

Shaun.


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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
newstarter


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Thank you so much both of you. Before actually writing this thread, I did my set of accounts to put the corp tax before taking dividends but just wanted to check.

Thank you both again.

Richard.

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RobH


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Keep away from that sword Shaun, you are needed here! I know what happened, in your mind you are saying the right thing but somehow one word goes wrong in the haste of making a post....I do it all the time!

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Rob
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